My goal for Global Macro Update is to help you navigate a complicated macroeconomic landscape. I intentionally avoid commenting on politics, unless it directly affects our investment themes.

Now is one of those times.

The current election cycle has gone from messy to violent. On the one hand, we have a president grappling with the realities of aging. Regardless of your political persuasion, almost anyone can see the challenges the President faces, and many Democrats are calling for a change.

On the other hand, we have Donald Trump, who appears, to the surprise of many, to have set off a moderating effect. It might not last. But for the moment, the assassination attempt has prompted calls on both sides to dial down the hate rhetoric. I have often said, Americans have more in common than not, and we’d do well to focus on our similarities. Friends can disagree and still be friends.

The risk with political violence is that it begets more violence. That gives both sides a powerful incentive to tone it down.

Despite the divisions, there are areas of agreement on Capitol Hill. The recent passing of the ADVANCE Act is a shining example. It calls for changes at the Nuclear Regulatory Agency, meant to reduce red tape and lower the costs of permitting and building modern nuclear power plants. The Act passed with near unanimous support. This is a big step toward improving America’s resiliency.

American resilience—in securing essential commodities, in rebuilding the nation’s industrial base, in fostering energy independence, in remaining the most technologically advanced country in the world—will have bipartisan support in the coming years, and it is an investable trend.

I expect more policies aimed at strengthening economic resilience here in the US, regardless of who becomes the next US president. But a second Trump term, which looks increasingly likely, would turbocharge this theme.

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Reliable Friends

I have been writing about reshoring and nearshoring for close to a year now. These trends have been playing out for over a decade. But rising labor costs in China and pandemic-era supply chain fiascos encouraged more companies to revamp their supply chains—and to do it fast.

Reshoring has been one of our investment themes in Macro Advantage, but it’s beginning to take on a slightly different patina. I expect more reshoring and nearshoring (which has been a huge boon to Mexico). But they’ve become part of a larger push to bolster economic resilience.

The US government has already pumped over $900 billion into boosting domestic manufacturing and production through the CHIPS Act, the Infrastructure Investment and Jobs Act, the Inflation Reduction Act, and an army of tariffs. We can expect more protectionist policies ahead.

Why? If Trump is elected, he’s made his desire for more and higher tariffs explicit. But even without him, Congress knows we rely far too heavily on unfriendly nations for critical resources.

We’re all set on soybeans, but what about rare earth elements? The magnets made from rare earths are essential for building Tomahawk missiles and radar systems, plus countless commercial products like cell phones and digital camera lenses.

Relying on China for rare earths and critical inputs made from rare earths is problematic. So, it’s no surprise that a bill to provide tax credits for domestic manufacturing of rare earth magnets has gained bipartisan support in the House.

We have plenty of natural gas, but what about graphite? It’s used in steelmaking and other critical industrial applications. Yet over 40% of our graphite imports come from… China.

We rely on less-than-friendly nations for access to a long list of critical resources. I am not suggesting we become the national equivalent of homesteaders and set out to produce everything we need ourselves. Trade is a good thing. But producing and manufacturing more essentials, and increasing trade with reliable friends, would bolster the economy and improve national security.

We live in an increasingly multipolar world. The answer to “Who is your friend?” when it comes to global trade is not black and white—it is often a shade of gray. Securing supplies of critical commodities and inputs will be an area of intense focus for China and Russia in the coming years. The US and its allies should do the same.

In many cases, the policies that will drive greater resilience will also drive what I’ve called resilience-driven inflation. So, that is something we need to prepare for in our portfolios. We will discuss that more in the weeks ahead. In the meantime, I’d welcome your feedback. Where do you see opportunities to improve economic resilience? Drop me a note in our community space here. 

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Thanks for reading.

Ed D’Agostino
Publisher & COO

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